Sec 295 & 372A

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Subhashchandra (Querist)

22 December 2010 does the investment in debentures and deposits requires compliance of both the : sec 295 and sec 372A . please give me the explanation.

thanks in advance.

udit sharma

udit sharma (Expert)

22 December 2010 Hi..

Section 295 and Section 372A of the Companies Act, 1956 are not inter-related. Explanations of the terms'Loans' and 'Free Reserves' given in Section 372A cant be applied in interpreting the ambit of the term'Laon' under section 295 of the Companies Act, 1956.

Explanation to Section 372A clearly provides that for the purpose of this section only Loans includes Debentures and deposit of money made by one Company into another Company.

Hence, in case a Company A invests in the Debentures of another Company B. Then it will be held that Company A has given a Loan to Company B and will have to comply with the provisions of section 372A of the Companies Act, 1956.

For the purpose of section 295, the term 'Loan' has not been defined and hence cant be said to include Debentures or deposit of money made by one Company in any other Company.

God Bless

Udit Sharma

Subhashchandra

Subhashchandra (Querist)

23 December 2010 thank u sir

Jayashree S Iyer

Jayashree S Iyer (Expert)

23 December 2010 Section 372A deals with intercorporate loans and investments while section 295 deals with loans to directors, etc. by a company. Where is the question of applicability of 295 in cases of issue of debentures by one company to another company? If it's a related party transaction (having common directors in both the companies exceeding 2% of the paid up share capital) Section 299 and 301
may get attracted.

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